How to read the financial reports of political parties

What is a financial report?

A financial report provides a comprehensive overview of a party’s financial position. In particular, it provides information on its funding sources, expenses, investments, and debts.

• The report includes four financial statements: the balance sheet, the income statement, the statement of changes in net assets, and the cash flow statement.
• It generally covers the period from January 1 to December 31.
• It also includes figures for the previous fiscal year to facilitate comparison.
• The content is consistent from one report to another, but the terminology may vary.

Provincial political parties must enclose with their financial report:

• an auditor’s report;
• the terms of reference relating to sources and use of funding. This document presents revenue as well as current, pre-election, and election expenses. Its standardized format provides the Chief Electoral Officer with the necessary reference points for analyzing the data.

Municipal political parties must comply with the form prescribed by the Chief Electoral Officer to file their report. If they have revenues in excess of $5,000, they must enclose their auditor’s report. Reimbursement of audit fees, reimbursement of election expenses, and supplemental public financing are excluded from the $5,000 threshold calculation, as are receipts resulting from certain non-operating transactions, such as loans.

Glossary

Income statement

This financial document summarizes all revenue and expenses of a political party to determine the excess or shortfall of revenue over expenses. It includes various components.

Revenue

Revenue consists of the income obtained by the party during the period covered by the financial report. They provide a breakdown of funding sources, including amounts received through public funding, amounts collected by the party (memberships, contributions, and fundraising activities), and funds deposited into the account upon the return of the official agent after an election.

Expenses

Expenses correspond to expenditures incurred by the party’s official representative during the fiscal year.

They can be of various types: advertising campaigns, salaries, monthly bank account fees, Internet provider invoices, etc.

Surplus of revenues over expenses

The excess of revenue over expenses corresponds to the difference between revenue and expenses. It indicates whether the party spent more money than it earned during the reporting period.

Balance sheet

The balance sheet provides an overall picture of the political party’s financial position and an indication of its financial health. It details what the party owns and what it owes.

Current assets

Current assets include liquid assets held by the party, including:

• funds in bank accounts;
• amounts the party expects to receive from Élections Québec;
• funds invested in investments with a term of less than 12 months.

Long-term assets

Long-term assets include items that create value for the party beyond the next 12 months:

• funds invested in investments with terms of more than 12 months;
• computer hardware, software, and furniture in party offices.

Current liabilities

Current liabilities include what the party owes to various partners in the near term:

• outstanding invoices;
• salaries payable to staff;
• loans to be repaid within one year.

Long-term liabilities

Long-term liabilities include amounts owed by the party over the longer term:

• loans taken out with a banking institution;
• loans taken out with electors.

Net assets

Net assets represent funds remaining in the party’s accounts at the end of the reporting period. Net assets can be broken down between investments in capital assets and other funds.

Total assets always equal total liabilities and net assets.

Cash flow statement

The cash flow statement summarizes the political party’s cash inflows and outflows during the reporting period.

Operating activities

Operating activities include the party’s day-to-day transactions that generate funds, depending on how the money is spent.

Fundraising activities

Fundraising activities provide information on the funds used to finance the party (generally, new loans or the repayment of pre-existing loans).

Investing activities

Investing activities provide information on the funds invested by the party in its assets, such as purchasing investments (term deposits) and acquiring computer hardware.

Cash and cash equivalents

Cash and cash equivalents correspond to cash on hand, specifically that from the last report (at the beginning of the period) and that found on the balance sheet of the current report (at the end of the period).

Statement of changes in net assets

The statement of changes in net assets links the statement of income and the balance sheet. It shows the funds the party had at the beginning of the reporting period and the amount remaining at the end of that period. It indicates how the party’s funds are allocated between election cycles.

Net assets

Information on net assets can be broken down between investments in capital assets and all other funds.

Closing balance

This balance is taken from the income statement.

Audit or supplementary notes

These notes provide important information and details that help you read the financial statements. They include descriptions and breakdowns of items presented in the report.

They may include:

• information on party authorization, the nature of its activities, and the presence or absence of local and regional authorities;
• accounting methods applied;
• details of capital assets, intangible assets, accounts receivable, debts, etc.;
• more precise information on funds received by the party, particularly regarding contributions and public funding;
• future financial commitments of the party (for a lease, for example).

These notes clarify various data items in the report.